The Wall Street Journal reports that Bets Yuan Will Go Higher Make Bond a Blockbuster.
(emphasis mine) [my comment]
OCTOBER 22, 2009
Bets Yuan Will Go Higher Make Bond a Blockbuster
By CHESTER YUNG
HONG KONG -- The Chinese government's first yuan bond sale in Hong Kong met strong demand as investors bid for three times the amount of debt on offer amid hopes for a stronger Chinese currency.
The six billion yuan ($879 million) offering, Beijing's first yuan deal outside the mainland, attracted 18 billion yuan worth of subscriptions since Sept. 28, the Ministry of Finance said.
"The subscription result is very satisfactory as yuan-denominated bonds are increasingly seen as investment products in Hong Kong," said Midas Chu, a fixed-income dealer at Bank of Communications Co. "This would encourage China to issue more on a regular basis."
China's onshore sales of government bonds typically have subscription rates of 1.5 to two times, although this isn't directly comparable to the Hong Kong sale given the different investor bases.
The sovereign offering is the latest in a slew of measures by Beijing in recent months aiming to internationalize the yuan. China has allowed the yuan to be used to settle cross-border trade with Hong Kong and some countries.
Carlos Cheung, the chief foreign-exchange dealer at Bank of East Asia, said the Chinese government's yuan bond issue in Hong Kong is more attractive than Hong Kong dollar-denominated bonds because of expectations of yuan appreciation.
"It's almost certain that the yuan will continue to appreciate given the positive China economic outlook, while the Hong Kong dollar bond is less appealing as the Hong Kong dollar is pegged to the U.S. dollar. Purchasing the yuan bond is basically a risk-free deal," he said.
Beijing's yuan bond sale in Hong Kong will also help establish a benchmark for other financial institutions if they plan on issuing yuan bonds in the city, said Daniel Chan, a senior investment strategist at DBS.
Investor response to the issue will determine whether the Chinese government issues more yuan-denominated sovereign debt in Hong Kong, Vice Finance Minister Li Yong said last month.
Mr. Li said the outlook for more corporate yuan bond sales in Hong Kong is "very good," adding that he expects more mainland financial institutions to issue bonds in the city in response to rising demand.
Beijing offered the bonds in tranches with maturities of two, three and five years.
The three billion yuan in two-year bonds, primarily targeting Hong Kong retail investors, carry a coupon of 2.25%. The 2.5 billion yuan of three-year bonds, aimed at retail and institutional investors, carry a coupon of 2.70%. The 500 million yuan of five-year bonds, primarily for institutional investors, carry a coupon of 3.30%.
Reuters reports that Chinese September M2, loan growth beats forecasts.
INSTANT VIEW 5-China Sept M2, loan growth beats forecasts
10.14.09, 06:26 AM EDT
BEIJING, Oct 14 (Reuters) - Chinese money supply and lending growth was surprisingly strong in September as the central bank, wary of the solidity of the economic recovery, kept to the moderately loose monetary policy it has been following for nearly a year.
-- M2 up 29.3 percent from year earlier vs forecast 28.4 percent.
-- Yuan lending up 34.2 percent year on year vs forecast 34.0 percent.
-- New loans in September alone hit 516.7 billion yuan.
-- Q3 FX reserves up $141 billion to $2.27 trillion.
ZHAO QINGMING, AN ECONOMIST WITH CHINA CONSTRUCTION BANK IN BEIJING:
'Loan growth is strong but within expectations. Economic activity, especially in the corporate sector, has picked up. You can see that exports are recovering. And bank loans to small and medium-sized enterprises are on the rise.
'Looking forward, new lending is likely to ease in coming months as more loans are paid back at the end of every year.
'It's too early to expect China to raise interest rates, despite the move by Australia earlier this month. Economic indicators are good at the moment, but time will tell whether the positive trend can be sustained.
'The possibility of China raising interest rates in 2009 is very small.
'As for the rise in foreign exchange reserves, it's hard to tell right now what the specific reasons are. But I believe the dollar's weakness in recent months was an important reason. Appreciation of the euro and the yen can have a significant effect on the numbers.'
XUE HUA, ANALYST AT MERCHANTS SECURITIES IN SHENZHEN:
'New yuan loans in September show that credit is still increasing from the year-earlier period; M2 in September was also very strong.
'But the fact is that there is already plenty of liquidity available to support the economic recovery, given the burst of credit in the first half, so there is actually no need for banks to lend as much as they did in September.
'I think M1 rather than M2 has become the most important indicator to keep a close eye on. M1 showed really robust growth in September. It shows enterprises have become very active in their businesses, another sign that the economy is recovering.
'We expect M1 growth will accelerate in the coming six months and will reach 30 percent in the fourth quarter.
'I don't think the central bank will take aggressive action to control loan quotas, although it has already leaned on banks to be more ration in extending loans.
'And the central bank won't take measures such as hiking interest rates or reserve requirements, because it needs to be in line with the State Council, which is still circumspect about the economic recovery.
'I think China's forex reserves will continue to increase in the coming months, as there is mounting anticipation among international funds that the yuan will appreciate.'
China View reports that China's new loans rise to 516.7 bln yuan in September.
China's new loans rise to 516.7 bln yuan in Sept.
www.chinaview.cn 2009-10-14 16:44:28
BEIJING, Oct. 14 (Xinhua) -- China's new yuan-denominated loans in September rose to 516.7 billion yuan (75.68 billion U.S. dollars) from August's 410.4 billion yuan, the People's Bank of China, the central bank, said Wednesday.
New yuan-denominated loans in the first nine months stood at 8.67 trillion yuan, 5.19 trillion yuan more than the same period last year.
China's foreign exchange reserve hit a new high of 2.2726 trillion U.S. dollars at the end of September, according to the central bank.
China's monthly new loans had slowed from June's high of 1.53 trillion yuan to 355.9 billion yuan in July as a result of bank contracting credit and the central bank's open market operations. The figure rose to 410.4 billion yuan in August and then to September's 516.7 billion yuan.
The broad measure of money supply, M2, which covers cash in circulation and all deposits, was up 29.31 percent from a year earlier to 58.54 trillion yuan at the end of September.
The narrow measure of money supply, M1 (cash in circulation plus current corporate deposits), was up 29.51 percent to 20.17 trillion yuan.
China View reports that China's retail sales up 18 percent during National Day holiday.
China's retail sales hit 570 bln yuan during National Day holiday
www.chinaview.cn 2009-10-09 22:54:06
Customers are seen at a shopping mall in Shanghai, east China, Oct. 8, 2009.(Xinhua/Chen Fei)
BEIJING, Oct. 9 (Xinhua) -- China's retail sales of consumer goods totaled 570 billion yuan (about 83.5 billion U.S. dollars) during the National Day holiday, with average daily sales up 18 percent compared with the same period of last year, the Ministry of Commerce said Friday.
Sales of household appliances soared during the eight-day holiday which started from Oct. 1. Among them, high-definition flat screen TV sets, digital cameras, side-by-side refrigerators and 3G mobile phones are consumers' favorites. In the case of Kaiyuan Mall in Xi'an, capital of Northwest China's Shaanxi Province, sales of household appliances gained by 34.7 percent year on year.
Jewelry and cars became hot sellers as well. The sales of jewelry of Caishikou Department Store in Beijing topped 100 million yuan, up 30 percent year on year [gold demand up in China]. Car sales of major car-selling companies in Southwest China's Chongqing Municipality increased by 71.7 percent year on year.
Rebel Traders reports that china's growth does not abate as power consumption goes up.
China's Growth Does Not Abate — Power Consumption Goes Up
by Free Mind on October 20, 2009 at 9:34 am
Despite what is habitually said of Chinese stats, some elements seem to indicate that "growth" is not abating in the Chinese economy. Electricity consumption is generally considered as the most reliable indicator to check the reality of Chinese production.
According to power usage stats, the September rise was the strongest Y/Y, and October and November energy consumption should also rise strongly to 15 and 20 % according to projections.
China's power consumption in September rose 10 percent year-on-year to 322.4 billion kilowatt hours, the fastest pace of growth since June last year, the China Electricity Council said on its Web site on Oct. 15.
The increase followed 8 percent growth in August and indicated continued economic recovery, it said.
Power generation in August gained 9.3 percent year-on-year to a record 344 billion kWh, as demand from manufacturing plants soared in line with rising consumption fueled by the government's stimulus spending. The council did not provide output figures for September.
Power consumption in the first nine months rose 1.4 percent year-on-year to 2.7 trillion kWh, it said.
Grid operators sold a combined 2.2 trillion kWh of electricity in the first nine months, up 3.2 percent year-on-year, it said.
A total of 199.7 billion yuan was spent on construction of power plants in the first three quarters, 83.2 billion yuan of which went on coal-fired projects.
China added 49 million kWt of generating capacity in the first nine months, comprising 32.9 million kWt of thermal power, 12.1 million kWt of hydropower and 4 million kWt of wind power, the council said.
A total of 219.2 billion yuan was spent on grid construction and upgrades, it said. [This is where all of China's copper imports are going]
Power consumption began falling year-on-year last October amid the global downturn. It began to grow again in June, when it expanded 4.3 percent. Growth rose further to 6 percent in July and 8.22 percent in August.
Corn and Soybean Digest reports that China is planning to continue stockpiling grain, soybeans.
China to Continue Stockpiling Grain, Soybeans
Oct 20, 2009 11:57 AM, Source: Brock Associates
China will continue to purchase grains and soybeans from farmers in 2010, raising its minimum purchase prices for some crops in an effort to protect farmers' interests and stabilize grain output, the country's State Council said on Monday in a statement published on the central government's Web site.
The government said it will raise its minimum purchase prices for wheat by 60 yuan (CNY)/metric ton, or 3.4%, next year to CNY1,720-1,800/ton, according to a report posted after Monday's meeting chaired by Premier Wen Jiabao.
Minimum prices for rice will be increased accordingly, and the government will continue to purchase corn, soybeans and rapeseed from farmers to protect their interests, it said.
The government did not say at what prices it will stockpile soybeans. Last year's soybean purchases were made at above-market prices and helped lead to a surge in lower priced imports.
Traders told Reuters News Service the government was likely to offer prices higher than last year, when it bought more than 6 million metric tons (mmt) of soybeans at CNY3,700/ton and 36 mmt of corn at CNY1,500/per ton for state reserves.
China's national grain stocks have been growing since the 2008 harvests due to the government's large volume of purchases, and as a result, grain prices so far this year have been mostly decided by the government's policies.
The country completed a nationwide inventory of grains recently, showing that its state-owned enterprises held a total of 225.4 mmt of raw grain as of the end of March 2009.
Grain stocks at state-owned enterprises and in farmers' hands account for the main part of China's total grain stocks.
Vice Premier Li Keqiang said recently that China will increase its grain storage capacity by another 15 mmt by the end of 2010.
Reuters reports that China is sticking to loose monetary policy.
China sticking to loose monetary policy - c.bank head
Fri Oct 30, 2009 9:00am IST
BEIJING (Reuters) - China will stick to an appropriately loose monetary policy, central bank governor Zhou Xiaochuan said on Friday.
Zhou was speaking in Shenzhen at the launch of China's ChiNext stock market, a long-awaited Nasdaq-style second board.
His remarks were relayed by several Chinese news portals.
The State Council, China's cabinet, earlier this month reaffirmed China's moderately accommodative monetary stance and active fiscal policy even though it said the economy was now on a more solid footing.
Contre Info reports that the renminbi has depreciated 6.9 percent since February 2009.
Only the Chinese renminbi remained unchanged against the dollar in the second quarter. This lack of movement of the renminbi has contributed to upward pressure on more flexible currencies in the region. Several emerging markets in the region have intervened in the foreign exchange market to slow the pace of appreciation. [Get it? Emerging markets are buying dollars because they don't want their currencies to appreciate against the yuan. If China drops its dollar peg, these emerging markets will stop buying dollars]
Although China's overall policies played an important role in anchoring the global economy in 2009 and promoting a reduction in its current account surplus, the recent lack of flexibility of the renminbi exchange rate and China's renewed accumulation of foreign exchange reserves risk unwinding some of the progress made in reducing imbalances as stimulus policies are eventually withdrawn and demand by China's trading partners recovers.
On an effective basis, the renminbi has depreciated 6.9 percent since February 2009. From the end of February through June, China's reserves increased both as a result of valuation changes and additional purchases associated with intervention. Both the rigidity of the renminbi and the reacceleration of reserve accumulation are serious concerns which should be corrected to help ensure a stronger, more balanced global economy
China Stakes reports that pressure for RMB to appreciate is increasing.
US Dollar Depreciation May Force RMB Appreciation
By CSC staff, Shanghai
The US dollar has been depreciating a bit of late, and as the Chinese RMB yuan is pretty much pegged to the US dollar, it has been depreciating right along, notably against the euro and the Japanese yen. This is causing a lot of pain in those areas, so much so that there is talk of resorting to protectionist measures. It looks as though China may have to adjust its policy and increase the flexibility of RMB, with the almost inevitable appreciation of the yuan.
Meanwhile, industrial action in other areas is underway. On October 6, the EU trade body ruled that seamless steel pipes imported from China pose a threat to the EU and it will begin levying anti-dumping duties of 17.7-39.2%. The following day, the US Commerce Department announced it would also conduct anti-dumping investigations on seamless standard pipes, pipelines and pressure pipes.
Chinese Ministry of Commerce statistics show that, from January to August this year, 17 countries and regions have initiated 79 trade remedy investigations against China, involving a tota l amount of about $10.035 billion, up 16.2% and 121.2%, year-on-year, a trend that looks likely to continue to spread. In mid-July, the WTO predicted the number of global anti-dumping cases in 2009 will reach 437, an historical high.
China worries about the depreciation of the dollar, for its huge foreign exchange reserves, largely dollar-denominated, may shrink. In the recent G20 meeting, China asked the US to maintain the stability of dollar, for the purpose of keeping the stability of RMB against other major currencies. The devaluation of RMB and US dollar together will also provoke a strong protectionist backlash. Although China's exports have dropped significantly, its market share has not and its trade surplus keep growing.
Since the dollar hit a low of 6.8009 against the yuan on September 23, 2008, it has been hovering around 6.83 for nearly 10 months, a situation China finds congenial. ...
The global economy is still out of whack and the basis for economic recovery remains fragile. Unemployment in Western countries continues to rise, and China's trading partners are not going to be satisfied merely with protectionist measures. Look for increased pressure for RMB to appreciate.
China Stakes reports that hot money is flooding back into China.
Trade Rebound and Expected RMB Appreciation Have Hot Money Flooding Back In
By CSC staff, Shanghai
China's exports are rebounding somewhat better than expected, and bringing with them sudden market expectations for RMB appreciation.
In the spate of economic data released this week, trade numbers for September bettered expectations, with exports amounting to $115.938 billion, down 15.2%, year-on-year, but the smallest drop this year, and imports reaching $103.006 billion, down 3.5%, year-on-year, but breaking the $100 billion line for the first time since last October. After seasonal adjustment, September's month-on-month import and export numbers show the seventh consecutive month of positive growth since March. Analysts deem China's rising foreign trade trend as basically established, and even predict, optimistically, that year-on-year import and export figures will resume positive growth by the end of the year.
But contrary to market beliefs, a Bank of China report claims there is no condition in the next year for RMB appreciation against USD. The report stresses the resistance to international pressure for any substantial RMB exchange rate changes. It states that measured by nominal effective exchange rates, RMB is already one of the few appreciating currencies since the onset of the financial crisis. The normal effective RMB exchange rate in August 2009 increased by 10.7% compared to that at the end of 2007.
But the enthusiasm of international capital for China assets has begun to rise again. By the end of September, the foreign exchange reserves balance totaled $2.2726 trillion, up 19.26%, year-on-year, with September's newly added reserves totaling $61.8 billion, third this year only to $80.6 billion in May and $74.5 billion in April.
The Business Mirror reports on the dying dollar.
More on the dying dollar
Written by John Mangun / Outside the Box
Monday, 19 October 2009 22:34
[confidence in the dollar is under attack in the Philippines (one of the emerging markets that has been buying dollars)]
If there was a deadly disease outbreak someplace in the world, you would want to be informed. If a major natural disaster hit 10,000 miles away, you would still want to know about it. If a breakthrough scientific discovery were announced, you would expect the local media to tell you about it.
You may be getting bored with this column continuing to talk about the breakdown of the dollar, but if you are not aware of what is happening, you are going to be submerged by a financial flood that is going to make Ondoy seem like a summer shower. [Ondoy? What is that?]
In yesterday's newspapers the Bangko Sentral ng Pilipinas (BSP) reported that so-called "hot money" net inflow to the Philippines was $47 million in September, reversing the $443 million in net outflows recorded in the same month last year. That is a $500-million reversal of fortune.
While the local "experts" are worried about the recent storms hampering the economy and the President is asking for damages from the other nations because of the myth of global warming, money around the world is scrambling for a safe haven from the dollar.
Also in yesterday's newspapers was a ridiculous comment. From the Philippine Star: "The Bangko Sentral ng Pilipinas has vowed to contain excessive volatilities in the foreign-exchange market in order to 'smoothen' the movement of the peso against the dollar. BSP Governor Amando M. Tetangco Jr. said it is necessary to contain such volatilities to help business and consumers plan more effectively."
To the BSP: If you really want businesses and consumers to plan more effectively, tell the truth that you know: The dollar is headed to historic low levels and there is nothing that you can do about it.
While the BSP has stated publicly that it is concerned about the financial affairs of our export sector with a falling dollar, there is nothing that can or should be done about the appreciation of the peso.
Trying to do anything in the face of incredible downward pressure on the dollar is both useless and dangerous.
Over this last weekend, another bullet was fired into the body of the dying dollar, unreported here in the Philippines, of course. In effect, the countries of South America have created their own currency similar to the euro. At the Bolivia Summit, leaders agreed to create a regional currency, the sucre. The exchange rate and trading of the sucre will begin in 2010. South America will no longer rely on the dollar for their internation settlement of trade. Bye-bye, US dollar.
Last week Russia and China agreed to billions of dollars worth of economic contracts to be settled in either China's yuan or the Russian ruble. Bye-bye, US dollar.
The Canadian dollar is nearly at par with the US dollar, which will make it more attractive for US companies doing business with Canada to accept payment in Canadian dollars for goods and services, not with the US dollar. Even Americans are going to be using non-dollar currencies.
Every one of these events are of crucial, even earth-shaking, importance, and they are not being reported here in the Philippines probably due to a continuing colonial mentality in the financial community.
It is unfortunate that Southeast Asian countries through Asean have their collective heads stuck in the sand, or someplace else, about this dollar-depreciation tsunami. This is perhaps the result of none of the Asean members having anything in common with each other except geography. No common language, no common religion, no common heritage unlike Europe and South America. Asean, and maybe the Philippines also, needs leadership that is more comfortable on the streets of Kuala Lumpur, Manila and Bangkok than New York, Rome and London.
The fact that significant amounts of foreign-investment funds are moving into the Philippines is a clear indication that this money expects the peso to appreciate as the dollar falls. All the talk about the supposed potential of poor economic fundamentals does not outweigh the reality of a dying dollar. A dying dollar by definition, along with the proof of history, demands that the peso strengthen. For the BSP to give any indication that this is not going to happen does a disservice to the nation.
The dollar is going to fall like a rock. The peso is going to appreciate beyond the expectations of the "experts" and you must be prepared.
The export sector is going to be hurt, no doubt about that. What the government should be doing is to prepare this sector to move markets from the US to other countries, and it should be done now. While all the newspapers care to talk about is the electronics market, electronics are only a portion, and not the most profitable portion of our export industry. Relying on America for our future export business is the same as betting on a horse with a broken leg; you can't win.
My reaction: The above news stories are all important pieces of the dollar's collapse.
Internationalizing the yuan
1) The Chinese government's first yuan bond sale in Hong Kong met strong demand.
Chinese money supply and lending growth
1) Chinese money supply and lending growth was surprisingly strong in September.
2) Chinese M2 (cash in circulation and all deposits) was up 29.31 percent.
3) Chinese M1 (cash in circulation plus current corporate deposits) was up 29.51 percent.
4) Chinese M1 growth expected to accelerate in the coming six months and reach 30 percent in the fourth quarter.
5) China is sticking to loose monetary policy.
Chinese demand continues to grow
1) China's retail sales up 18 percent during National Day holiday.
2) China's power consumption in September rose 10 percent year-on-year to 322.4 billion kilowatt hours, the fastest pace of growth since June last year, showing that "growth" is not abating in the Chinese economy.
3) China is planning to continue stockpiling grain, soybeans.
The death spiral of the dollar continues
1) The renminbi has depreciated 6.9 percent since February 2009.
2) Pressure for the RMB to appreciate is increasing.
3) Hot money is flooding back into China.
4) Confidence in the dollar continues to take a beating.
Conclusion: Everything is continuing exactly as expected.
1) China continues to take important steps to internationalize the yuan.
2) China's money supply continues to explode out of control.
3) Chinese demand continues to grow as a result of government stimulous.
4) Confidence in the dollar continues to fall.